<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
June 24, 1997
-----------------------------------------------
Date of Report (Date of Earliest Event Reported)
CONTINENTAL MORTGAGE AND EQUITY TRUST
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
California 0-10503 94-2738844
- --------------------------------------------------------------------------------
(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-4700
-------------------
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 17, 1997, Continental Mortgage and Equity Trust (the "Trust")
purchased the Lost Timbers Apartments (also known as the Timbers Apartments) in
Houston, Texas for $3.5 million (1.4% of the Trust's assets at December 31,
1996). The seller of the property was Lost Timbers Apartments, Ltd. The
property was constructed in 1975 and consists of 180 units which were 92%
occupied at the date of acquisition. The Trust paid $800,000 in cash and
assumed the existing mortgage of $2.7 million.
On February 28, 1997, the Trust purchased the Jefferson Office Building in
Washington, DC for $13.2 million (5.3% of the Trust's assets at December 31,
1996). The seller of the property was Orange Nassau Property Services, a
Delaware corporation. The property was constructed in 1963 and consists of
71,877 square feet which were 99% occupied at the date of acquisition. The
Trust paid $4.1 million in cash and obtained new mortgage financing for the
remaining $9.1 million of the purchase price.
On May 27, 1997, the Trust purchased the Trails at Windfern Apartments in
Houston, Texas for $4.2 million (1.7% of the Trust's assets at December 31,
1996). The seller of the property was Mid National Holdings, Inc., a Texas
corporation. The property was constructed in 1975 and consists of 240 units
which were 92% occupied at the date of acquisition. The Trust paid $769,000 in
cash, assumed the existing mortgage of $3.2 million and the seller provided
purchase money financing of an additional $150,000.
On June 24, 1997, the Trust purchased the Bay Plaza Office Center in Tampa,
Florida for $4.3 million (1.7 % of the Trust's assets at December 31, 1996).
The seller of the property was Bay Plaza I Partners, a Florida general
partnership. The property was constructed in 1974 and consists of 75,780 square
feet which were 94% occupied at the date of acquisition. The Trust paid $1.2
million in cash, assumed the existing mortgage of $2.1 million and the seller
provided purchase money financing of an additional $1.0 million.
These purchases of income producing properties, when combined, exceed 10% of
the Trust's assets at December 31, 1996.
In addition to the income producing properties described above, on February 18,
1997, the Trust purchased the Watters Road land in Collin County, Texas for
$1.7 million. The seller of the property was Sammy Rosenzweig, Trustee. The
property consists of 103 acres of undeveloped land. The Trust paid $1.7 million
in cash.
On April 7, 1997, the Trust purchased the OPUBCO land in Collin County, Texas
for $3.0 million. The seller of the property was Gaylord Properties, L.P. The
property consists of 156 acres of undeveloped land. In conjunction with the
purchase, the Trust obtained mortgage financing secured by the land and by two
other parcels of land in the amount of $4.2 million. The Trust received net
cash of $1.2 million.
On June 16, 1997, the Trust purchased the Stacy Road land in Allen, Texas for
$2.5 million. The seller of the property was Samuel
2
<PAGE> 3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Rosenzweig, Trustee. The property consists of 163 acres of undeveloped land.
The Trust paid $800,000 in cash and obtained new mortgage financing for the
remaining $1.7 million of the purchase price.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro forma financial information:
Pro forma statements of operations are presented for the year ended December
31, 1996 and the three months ended March 31, 1997. A pro forma balance sheet
as of March 31, 1997 is also presented.
A summary of the pro forma transactions follows:
In January 1997, the Trust purchased the Lost Timbers Apartments (also known as
the Timbers Apartments), a 180 unit apartment complex in Houston, Texas, for
$3.5 million. The Trust paid $800,000 in cash and assumed the existing mortgage
of $2.7 million. The mortgage bears interest at a variable rate, currently
9.29% per annum, adjusted semi-annually, requires monthly payments of principal
and interest of $22,704, also adjusted semi-annually and matures in June 1999.
In February 1997, the Trust purchased the Jefferson Building, a 71,877 square
foot office building in Washington, D.C., for $13.2 million. The Trust paid
$4.1 million in cash and obtained new mortgage financing of $9.1 million. The
mortgage bears interest at 8.0% per annum, requires monthly payments of
principal and interest of $70,000 and matures in March 1999.
In May 1997, the Trust purchased the Trails at Windfern Apartments, a 240 unit
apartment complex in Houston, Texas, for $4.2 million. The Trust paid $769,000
in cash, assumed the existing mortgage of $3.2 million and the seller provided
additional purchase money financing of $150,000. The $3.2 million mortgage
bears interest at a variable rate, currently 9.0% per annum, adjusted annually,
requires monthly payments of principal and interest of $26,674 and matures in
January 1999. The $150,000 purchase money note bears interest at 8.0% per
annum, requires monthly payments of interest only and matures in May 2000.
In June 1997, the Trust purchased the Bay Plaza Office Center, a 75,780 square
foot office building in Tampa, Florida, for $4.3 million. The Trust paid $1.2
million cash, assumed the existing mortgage of $2.1 million and the seller
provided purchase money financing of an additional $1.0 million. The $2.1
million first mortgage bears interest at 8.3% per annum, requires monthly
payments of principal and interest of $23,354 and matures in June 2009. The
$1.0 million second mortgage bears interest at 8.3% per annum, requires monthly
payments of $9,731 and matures in June 2002.
In addition to the purchases described above, during 1997 the Trust has sold
two office buildings. In connection with the sales, the Trust received net
proceeds totaling $14.0 million, after the payoff of $11.5
3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
million in existing mortgage debt and the payment of various closing costs
associated with the sales. The Trust recognized a total gain on these
dispositions of $6.9 million.
The pro forma statements of operations present the Trust's operations as if the
transactions described above had occurred at the beginning of each of the
periods presented.
[This space intentionally left blank.]
4
<PAGE> 5
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
OPUBCO
Trails at and
Windfern Bay Plaza Stacy Road Property
Actual(1) Apartments Office Center Land Dispositions Pro forma
-------- ---------- ------------- ---- ------------ ---------
(dollars in thousands)
Assets
<S> <C> <C> <C> <C> <C> <C>
Notes and interest receivable
Performing .................... $ 6,239 $ -- $ -- $ -- $ -- $ 6,239
Nonperforming, nonaccruing .... 2,008 -- -- -- -- 2,008
-------- ------ ------ ------ ------- --------
8,247 -- -- -- -- 8,247
Less - allowance for estimated
losses ........................ (1,481) -- -- -- -- (1,481)
-------- ------ ------ ------ ------- --------
6,766 -- -- -- -- 6,766
Foreclosed real estate held for
sale, net of accumulated
depreciation .................. 5,738 -- -- -- -- 5,738
Real estate under contract for
sale, net of accumulated
depreciation .................. 8,102 -- -- -- (8,102) --
Real estate held for investment,
net of accumulated depreciation 224,766 4,150 4,275 5,498 (9,050) 229,639
Investments in marketable equity
securities of affiliates,
at market ..................... 14,697 -- -- -- -- 14,697
Investments in partnerships ...... 2,215 -- -- -- -- 2,215
Cash and cash equivalents ........ 764 (769) (1,150) 311 12,402 11,558
Other assets ..................... 11,518 -- -- -- -- 11,518
-------- ------ ------ ------ ------- --------
$274,566 $3,381 $3,125 $5,809 $(4,750) $282,131
======== ====== ====== ====== ======= ========
</TABLE>
(1) The balance sheet affect of all other 1997 property purchases and
dispositions are included in the March 31, 1997 actual balances
presented.
5
<PAGE> 6
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
OPUBCO
and
Trails at Stacy
Windfern Bay Plaza Road Property
Actual(1) Apartments Office Center Land Dispositions Pro forma
--------- ---------- ------------- ---- ------------ ---------
(dollars in thousands)
Liabilities and Shareholders' Equity
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Notes and interest payable ....... $175,557 $ 3,381 $3,125 $5,809 $(11,625) $176,247
Other liabilities ................ 12,242 -- -- -- -- 12,242
-------- -------- ------ ------ -------- --------
187,799 3,381 3,125 5,809 (11,625) 188,489
Commitments and contingencies
Shareholders' equity
Shares of Beneficial Interest, no
par value; authorized shares,
unlimited; issued and
outstanding 4,026,044 shares .. 8,068 -- -- -- -- 8,068
Paid-in capital .................. 257,159 -- -- -- -- 257,159
Accumulated distributions in
excess of accumulated earnings (191,852) -- -- -- 6,875 (184,977)
Net unrealizable gains on
marketable equity securities .. 13,392 -- -- -- -- 13,392
-------- -------- ------ ------ -------- --------
86,767 -- -- -- 6,875 93,642
-------- -------- ------ ------ -------- --------
$274,566 $ 3,381 $3,125 $5,809 $(4,750) $282,131
======== ======== ====== ====== ======= ========
</TABLE>
(1) The balance sheet affect of all other 1997 property purchases and
dispositions are included in the March 31, 1997 actual balances
presented.
6
<PAGE> 7
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Stacy
Road,
Bay Watters
Lost Jefferson Plaza Road and Trails at
Timbers Office Office OPUBCO Windfern Property
Actual Apartments(1) Building(1) Center(1) Land (1) Apartments Dispositions(1) Pro forma
---------- ------------- ----------- --------- -------- ---------- --------------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income ...............
Rents ............. $ 13,069 $37 $381 $268 $ -- $255 $ (901) $ 13,109
Interest .......... 272 -- -- -- -- -- -- 272
---------- --- ---- ---- ----- ---- ------ ----------
13,341 37 381 268 -- 255 (901) 13,381
Expenses
Property operations 7,705 5 142 101 -- 121 (460) 7,614
Interest .......... 3,532 11 121 66 140 76 (223) 3,723
Depreciation ...... 1,520 3 46 21 -- 27 (145) 1,472
Advisory fee to
affiliate ...... 444 -- -- -- -- -- -- 444
General and
administrative . 585 -- -- -- -- -- -- 585
---------- --- ---- ---- --- ---- ------ ----------
13,786 19 309 188 140 224 (828) 13,838
---------- --- ---- ---- ----- ---- ------ ----------
Income (loss) from
operations ........ (445) 18 72 80 (140) 31 (73) (457)
Equity in income of
partnerships ...... 47 -- -- -- -- -- -- 47
Gain on sale of real
estate ............ -- -- -- -- -- -- 6,875 6,875
---------- --- ---- ---- ----- ---- ------ ----------
Net income (loss) .... $ (398) $18 $ 72 $ 80 $(140) $ 31 $6,802 $ 6,465
========== === ==== ==== ===== ==== ====== ==========
Earnings per share
Net (loss) ......... $ (.10) $ 1.61
========== ==========
Shares of beneficial
interest outstanding 4,026,197 4,026,197
========== ==========
</TABLE>
(1) Assumes acquisition or disposition by the Trust on January 1, 1996. Pro
forma amounts for other property acquisitions are from January 1 through
the date of acquisition only. Results subsequent to the date of
acquisition are included in the "Actual" column.
7
<PAGE> 8
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Stacy Road,
Bay Watters
Lost Jefferson Plaza Road and Trails at
Timbers Office Office OPUBCO Windfern Property
Actual Apartments(1) Building(1) Center(1) Land(1) Apartments Dispositions(1) Pro forma
------ ------------ ---------- -------- ------ ---------- -------------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income ..................
Rents ................ $ 44,244 $850 $2,283 $1,071 $ -- $1,021 $(1,654) $ 47,815
Interest ............. 1,119 -- -- -- -- -- -- 1,119
---------- ---- ------ ------ ----- ------ ------- ----------
45,363 850 2,283 1,071 -- 1,021 (1,654) 48,934
Expenses
Property operations .. 26,738 484 853 404 -- 516 (1,045) 27,950
Interest ............. 12,773 250 728 150 559 302 (708) 14,054
Depreciation ......... 4,819 74 277 86 -- 110 (233) 5,133
Advisory fee to
affiliate ......... 1,091 -- -- -- -- -- -- 1,091
Incentive and net
income fees ....... 1,049 -- -- -- -- -- -- 1,049
General and
administrative .... 2,213 -- -- -- -- -- -- 2,213
Provision for losses . (884) -- -- -- -- -- -- (884)
---------- ---- ------ ------ ----- ------ ------- ----------
47,799 808 1,858 640 559 928 (1,986) 50,606
---------- ---- ------ ------ ----- ------ ------- ----------
Income (loss) from
operations ........... (2,436) 42 425 431 (559) 93 332 (1,672)
Equity in income of
partnerships ......... 228 -- -- -- -- -- -- 228
Gain on sale of real
estate and marketable
equity securities .... 10,122 -- -- -- -- -- 6,875 16,997
---------- ---- ------ ------ ----- ------ ------- ----------
Income (loss) before
extraordinary gain ... 7,914 42 425 431 (559) 93 7,207 15,553
Extraordinary gain ...... 812 -- -- -- -- -- -- 812
---------- ---- ------ ------ ----- ------ ------- ----------
Net income (loss) ....... $ 8,726 $ 42 $ 425 $ 431 $(559) $ 93 $ 7,207 $ 16,365
========== ==== ====== ====== ===== ====== ======= ==========
Earnings per share
Income before
extraordinary gain $ 1.89 $ 3.71
Extraordinary gain ... .19 .19
---------- ----------
Net income (loss) .... $ 2.08 $ 3.90
========== ==========
Shares of beneficial
interest outstanding . 4,199,147 4,199,147
========== ==========
</TABLE>
(1) Assumes acquisition or disposition by the Trust on January 1, 1996.
8
<PAGE> 9
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
(b) Financial statements of properties acquired:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------------------------------------------------------------
<S> <C>
99.0 Lost Timbers Apartments Audited Statement of Revenues and
Direct Operating Expenses for the year ended December 31, 1996.
99.1 Jefferson Building Audited Statement of Revenues and Direct Operating
Expenses for the year ended December 31, 1996.
99.2 Trails at Windfern Apartments Audited Statement of Revenues and
Direct Operating Expenses for the year ended December 31, 1996.
99.3 Bay Plaza Office Center Audited Statement of Revenues and
Direct Operating Expenses for the year ended December 31, 1996.
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
CONTINENTAL MORTGAGE AND EQUITY TRUST
Date: July 9, 1997 By: /s/ Thomas A. Holland
--------------------------------- ----------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
<PAGE> 10
CONTINENTAL MORTGAGE AND EQUITY TRUST
EXHIBIT TO ITS
CURRENT REPORT ON FORM 8-K
Dated June 24, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ---------------------------------------------- ------
<S> <C> <C>
99.0 Lost Timbers Apartments Audited Statement of 11
Revenues and Direct Operating Expenses for
the year ended December 31, 1996.
99.1 Jefferson Office Building Audited Statement 15
of Revenues and Direct Operating Expenses
for the year ended December 31, 1996.
99.2 Trails at Windfern Apartments Audited 19
Statement of Revenues and Direct Operating
Expenses for the year ended December 31, 1996.
99.3 Bay Plaza Office Center Audited Statement of 23
of Revenues and Direct Operating Expenses
for the year ended December 31, 1996.
</TABLE>
10
<PAGE> 1
EXHIBIT 99.0
THE TIMBERS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
11
<PAGE> 2
Independent Auditors' Report
To the Board of Trustees
Continental Mortgage and Equity Trust
We have audited the accompanying statement of revenues and direct operating
expenses of The Timbers for the year ended December 31, 1996. This statement
of revenues and direct operating expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
statement of revenues and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues and direct operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of revenues and
direct operating expenses presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Continental Mortgage and Equity Trust) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.
In our opinion, the statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of The Timbers for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
Farmer, Fuqua, Hunt & Munselle, P.C.
Dallas, Texas
April 8, 1997
12
<PAGE> 3
THE TIMBERS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 812,811
Other revenues 37,042
------------
Total revenues 849,853
OPERATING EXPENSES
Repairs and maintenance 138,839
Salaries and benefits 137,898
Property taxes 101,829
Utilities 75,597
Insurance 29,791
------------
Total direct operating expenses 483,954
------------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 365,899
============
</TABLE>
The accompanying notes are an integral part of this statement.
13
<PAGE> 4
THE TIMBERS
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1996
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
The Timbers is a 180-unit apartment complex, located in Houston, Texas.
During 1996, the property was owned by Lost Timbers Limited Partnership
The accompanying financial statement does not include a provision for
depreciation and amortization, bad debt expense, interest expense or
income taxes. Accordingly, this statement is not intended to be a
complete presentation of the results of operations.
NOTE 2: ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 3: OTHER REVENUES
Other revenues consist of the following;
<TABLE>
<S> <C>
NSF/Late fees $ 22,513
Forfeited deposits 8,982
Application fees 4,425
Miscellaneous 1,122
-----------
$ 37,042
===========
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity Trust, a
California business trust, on January 17, 1997.
14
<PAGE> 1
EXHIBIT 99.1
THE JEFFERSON BUILDING
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
15
<PAGE> 2
Independent Auditors' Report
To the Board of Trustees
Continental Mortgage and Equity Trust
We have audited the accompanying statement of revenues and direct operating
expenses of The Jefferson Building for the year ended December 31, 1996. This
statement of revenues and direct operating expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on this
statement of revenues and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues and direct operating expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall statement of revenues and direct
operating expenses presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Continental Mortgage and Equity Trust) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.
In our opinion, the statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of The Jefferson Building for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
Farmer, Fuqua, Hunt & Munselle, P.C.
Dallas, Texas
July 7, 1997
16
<PAGE> 3
THE JEFFERSON BUILDING
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
REVENUES
Net rental revenues $2,158,067
Other revenues 124,951
---------
Total revenues 2,283,018
DIRECT OPERATING EXPENSES
Repairs and maintenance 294,406
Property taxes 249,428
Utilities 185,527
Salaries and benefits 107,087
Insurance 16,267
---------
Total direct operating expenses 852,715
---------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $1,430,303
=========
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE> 4
THE JEFFERSON BUILDING
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1996
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
The Jefferson Building is a 71,876 square foot office complex located
in Washington, D.C. During 1996, the property was owned by Orange
Nassau Property Services.
The accompanying financial statement does not include a provision for
depreciation and amortization, bad debt expense, interest expense or
income taxes. Accordingly, this statement is not intended to be a
complete presentation of the results of operations.
NOTE 2: ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 3: OTHER REVENUES
Other revenues consist of the following:
<TABLE>
<S> <C>
Common area maintenance charges $ 106,830
Lease termination fees 10,000
Valet parking income 7,800
Miscellaneous 321
--------
$ 124,951
========
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity Trust, a
California business trust, on February 28, 1997.
18
<PAGE> 1
EXHIBIT 99.2
THE TRAILS OF WINDFERN
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
19
<PAGE> 2
Independent Auditors' Report
To the Board of Trustees
Continental Mortgage and Equity Trust
We have audited the accompanying statement of revenues and direct operating
expenses of The Trails of Windfern for the year ended December 31, 1996. This
statement of revenues and direct operating expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on this
statement of revenues and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues and direct operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of revenues and
direct operating expenses presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Continental Mortgage and Equity Trust) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.
In our opinion, the statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of The Trails of Windfern for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
Farmer, Fuqua, Hunt & Munselle, P.C.
Dallas, Texas
May 23, 1997
20
<PAGE> 3
THE TRAILS OF WINDFERN
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 973,198
Other revenues 48,513
------------
Total revenues 1,021,711
OPERATING EXPENSES
Utilities 158,175
Salaries and benefits 141,003
Property taxes 110,970
Repairs and maintenance 77,696
Insurance 28,583
------------
Total direct operating expenses 516,427
------------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 505,284
============
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE> 4
THE TRAILS OF WINDFERN
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1996
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
The Trails of Windfern is a 240-unit apartment complex located in
Houston, Texas. During 1996, the property was owned by Mid National
Holdings, Inc.
The accompanying financial statement does not include a provision for
depreciation and amortization, bad debt expense, interest expense or
income taxes. Accordingly, this statement is not intended to be a
complete presentation of the results of operations.
NOTE 2: ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 3: OTHER REVENUES
Other revenues consists of the following:
<TABLE>
<S> <C>
Late fees and forfeited security deposits $ 46,372
Laundry commissions 2,141
--------
$ 48,513
========
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity Trust, a
California business trust, on May 27, 1997.
22
<PAGE> 1
EXHIBIT 99.3
BAY PLAZA OFFICE BUILDING
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
<PAGE> 2
Independent Auditors' Report
To the Board of Trustees
Continental Mortgage and Equity Trust
We have audited the accompanying statement of revenues and direct operating
expenses of Bay Plaza Office Building for the year ended December 31, 1996.
This statement of revenues and direct operating expenses is the responsibility
of the Property's management. Our responsibility is to express an opinion on
this statement of revenues and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues and direct operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of revenues and
direct operating expenses presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Continental Mortgage and Equity Trust) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.
In our opinion, the statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of Bay Plaza Office Building for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
Farmer, Fuqua, Hunt & Munselle, P.C.
Dallas, Texas
May 29, 1997
24
<PAGE> 3
BAY PLAZA OFFICE BUILDING
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 999,848
Other revenues 71,064
----------
Total revenues 1,070,912
OPERATING EXPENSES
Repairs and maintenance 146,001
Utilities 132,575
Property taxes 76,448
Salaries and benefits 35,124
Insurance 13,866
----------
Total direct operating expenses 404,014
----------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 666,898
==========
</TABLE>
The accompanying notes are an integral part of this statement.
25
<PAGE> 4
BAY PLAZA OFFICE BUILDING
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1996
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Bay Plaza Office Building is a 75,780 square foot office building
located in Tampa, Florida. During 1996, the property was owned
by Bay Plaza I Partners.
The accompanying financial statement does not include a provision
for depreciation and amortization, bad debt expense, interest
expense or income taxes. Accordingly, this statement is not
intended to be a complete presentation of the results of
operations.
NOTE 2: ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3: OTHER REVENUES
Other revenues consists of the following:
<TABLE>
<S> <C>
Utility reimbursements $ 70,098
Miscellaneous 966
--------
$ 71,064
========
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity Trust, a
California business trust, on June 24, 1997.
26
